ELLIOTT WAVE ANALYSIS - Latest Market Commentary
Stock Indices
One-by-one, global stock markets are confirming the upside completion of five wave impulse trends that began from the dual lows of June ’12 and Nov.’12. Late last year, two Asian indices formed important highs – the Hang Seng and Nikkei 225 – in more recent weeks, the small-cap Russell 2000 traded in the U.S. has confirmed its completion earlier this month. The latest indices to confirm a high were only confirmed in trading during last Friday’s session – that is, the Eurostoxx 50 and Xetra Dax indices. The only remaining question is whether our benchmark S&P 500 has also completed its uptrend as intermediate wave (3), or as an alternate short-term count allows, extends towards 2014.12-2044.04? The most important event during last Friday’s trading occurred when the Eurostoxx 50 briefly exceeded its previous week’s low of 3132.87. This neutralised the three price-swing decline that had unfolded as a counter-trend zig zag pattern from the June high – instead, this is replaced by a 1-2-1-2 bearish sequence but with another 2nd wave rally currently unfolding as an expanding flat pattern. This translates into a short-term upswing during the coming week but limited below the recent highs. ###This same configuration can also be superimposed into the Xetra Dax. Our bearish stance for European indices leaves only the S&P 500 as the outperforming index with the potential to trade into one final higher high synchronising its action with the counter-trend upswing for European indices. But even this is not assured. European indices are expected to trade higher by approx. +2.2% during the coming week so this does translate into the S&P for an attempt towards 2004.00+/-. Either way, we can now confirm the limited upside potential for global indices prior to a sustained 2- or 3-month counter-trend decline getting underway and with downside projections during this period of -15/-20%. 21st July 2014
Currencies (FX)
The US$ index is currently approaching short-term overhead resistance at 8074. This level is insofar important as it is derived by a fib. 61.8% extension of the initial upswing earlier this month and thus delimits the upside potential for a typical single zig zag sequence. If the US$ stalls in the proximity of this level, it would support the idea that the upswing from 7974 is unfolding into a counter-trend correction and thus advocate additional downside. The outlook so far however does not support this assumption and instead implies an imminent upside acceleration. The May-June advance is labelled as the 1st wave within an ongoing five wave expanding-impulse pattern that is forecast towards ultimate upside at 8885+/- in the months ahead. The 3rd wave should just about enter its 3rd wave acceleration – thus, a swift continuation higher is assigned a high probability. This is reinforced by the Euro/US$’s scenario: downside momentum is picking up which suggests the Euro has already entered its 3rd wave within the five wave decline from 1.3993. During the next months, it is forecast towards ultimate downside at 1.2528 – the alternate scenario otherwise suggests the possibility of bottom building towards the 1.3210+/- area. ###Meanwhile, Sterling has confirmed a higher high at 1.7192 which can be pinpointed by internal fib-price measurements basis the finalising advance from 1.6693. This sets the stage for a reversal signature which, once confirmed, would initiate a substantial counter-trend decline that is projected to ultimate downside at 1.5959 in the months ahead – interim support measures towards 1.6419. US$/Yen has traded lower from Wednesday’s high of 10181 and is thus at risk of a sudden downside acceleration. The short-term picture describes the 10123-10181 range as a running flat sequence which is often followed by violent price moves in the direction of the larger trend. Acceleration lower would thus corroborate ultimate downside towards 9227+/- in the months ahead. 21st July 2014
Bonds (Interest Rates)
Despite robust employment data releases of the last several months leading to a logically fundamental expectation that the Federal Reserve would begin an earlier-than-expected rate hike in 2015, long-dated yields have continued lower during last week’s trading. A short-term break below the 2.494% level now extends the corrective expanding flat pattern that began primary wave 4 from last September’s high towards 2.355%. But this is simply the more exact fib. 38.2% retracement level of primary wave 3’s advance from last year’s low than the earlier May low traded at 2.399%. This means that in the short-term, the US10yr yield is expected to edge lower during the next few weeks for this ultimate test to 2.355% prior to staging a reversal upswing to begin primary wave 5 and maintaining our intermediate-term bullish outlook. In Europe, Germany’s DE10yr yield has equally edged lower during last week’s trading but it has now broken below the critical May ’13 low of 1.151% by a couple of bps to last week’s low at 1.132%. This has negated a similar ###five wave uptrend that began equally with the US10yr yield at the July ’12 lows. It means its 30+yr downtrend remains in progress, requiring one additional push to new record lows prior to staging a generational reversal signature that heralds the beginning of a 30+yr uptrend. Our downside projection for the DE10yr yield during the next few months measures its completion towards 0.849%. 21st July 2014
Commodities
The ongoing conflict in Ukraine/Russia with last week’s airline disaster caused precious metals to flip higher from the lows recorded earlier in the week but from an Elliott Wave perspective, the buying resulted in the completion of counter-trend rallies. This proved correct as Friday’s trading pulled levels lower from the previous night’s peak closing near session lows. The gold and silver outlook for the next few months remains bearish although we continue to monitor alternate bullish counts and their respective sensitive price levels. The bearish count for gold depicts a five wave impulse decline unfolding from the March high of 1392.30 with ultimate downside targets during the next few months towards 1096.00+/- . Its five wave subdivision ended minor wave i. one into the April low at 1277.30 and a subsequent counter-trend upswing as minor wave ii. two into last week’s high at 1344.93. Accelerative declines as minor wave iii. three are now engaged and this is generally supported by composite cycles that continue lower into September and from the bullish Elliott Wave outlook for the US$ dollar. The coming week will be important as gold approaches its crossroad at 1272.43+/-. How gold reacts to this level will determine whether ###it continues lower to 1096.00+/- or alternatively, turns higher in measurable fashion to confirm a much higher attempt towards 1475.00+/-. Silver has a similar structure to gold having begun its overall decline from the Feb.’14 high of 22.19. The subsequent decline to 18.79 confirms its downtrend with the subsequent upswing into last week’s highs at 21.60 ending a counter-trend rally. Silver’s rejection to the downside translates into another five wave impulse pattern developing during the next few months towards 17.43. Like gold, silver will test this bearish outlook during the coming week when it declines towards the 20.19-19.96 level. A break below would confirm the ongoing decline towards 17.43 but a reversal upswing would otherwise depict a more bullish outlook with targets towards 25.12. Meanwhile, Crude oil has undergone a deep corrective upswing last week from 99.01 to 103.90 but the prevailing downtrend remains intact from the 107.68 high traded last June. Ultimate downside targets remain unchanged towards 94.41 for the completion of a 2nd wave correction – our medium-term outlook remains bullish. 21st July 2014
